The Moroccan real estate sector is regulated by numerous laws and decrees, which are regularly amended and completed. Most of the laws are not codified.
The main sources of real estate legislation can be found in the following texts (non-exhaustive list):
The COVID-19 health crisis has directly and deeply impacted the Moroccan real estate market, with Morocco's GDP experiencing a 6% contraction in 2020.
After this unprecedented shock, Morocco is now entering a phase of normalisation, with GDP growth expected to reach 3.2% in 2022. However, this recovery remains fragile and the risk of default in rent or loan payments remains fairly high, particularly for small and fragile businesses.
Unsurprisingly, hospitality has been the sector most affected by the pandemic, with operators suffering an immediate decrease in business due to the closure of the country’s borders for commercial flights (even recently to contain the Omicron variant of COVID-19). In this context, the Moroccan government approved a MAD2 billion emergency plan in January 2022, with MAD1 billion to support the recovery of the tourism sector, providing in particular for the implementation of financial support to hotel owners and operators to help them improve the quality of services offered.
It is also worth mentioning that the price of new-build property is expected to increase in 2022, mainly due to increases in the price of building materials. Indeed, real estate promoters are already experiencing a rise in prices and a lack of several essential raw materials for construction, such as glass, aluminium and concrete. The price of steel also continues to increase, rising from MAD7.5 per kilo before the crisis to nearly MAD12.5 per kilo currently, according to the vice president of the National Federation of Real Estate Developers.
The Moroccan real estate sector has not yet been impacted by blockchain technology, decentralised financing, proptech or other disruptive technologies.
Professionals in the real estate sector are calling for a facilitation and simplification of the procedures for issuing authorisations (building permits, certificate of conformity, etc).
Some reforms are expected in 2022, including a new bill on urban planning documents and a new bill on industrial areas. There is also a proposal to set up a single national portal for urban planning documents, which will enable the electronic publication of approved urban planning documents.
The Moroccan legal framework that applies to property rights remains complex, principally due to the variety of legal regimes governing lands and the co-existence of unregistered and registered property.
Categories of Moroccan land tenure can be summarised as follows.
Rights in rem (droit réels)
Law No 39-08 forming the Moroccan Real Property Code (Code des Droits Réels) lists Moroccan rights in rem as follows.
In addition to the general rules of contract law related to sale and purchase agreements, the transfer of private registered property is governed by specific pieces of legislation, such as:
Furthermore, specific laws apply to the transfer of certain types of real estate (land belonging to the private state domain, collective lands, individual property of unregistered land (moulkiya), etc). There are no specific provisions that apply to the industrial, office or retail sectors.
Under Moroccan Law, ownership of registered land is not transferred to the buyer until the notarised deed of sale – which must be signed before a notary public or equivalent – is registered with the Land Registry (Conservation foncière). The Moroccan Constitution guarantees ownership, and the title for registered land is granted by the Land Registry, which ensures that the deeds are properly registered. The information contained in the Land Registry is available to the public and can be obtained for a nominal cost. Therefore, title insurance is not a common practice in Morocco.
Limitations in governmental office functionality and in-person availability for document signing or notarisation caused by the COVID-19 pandemic resulted in new processes or procedures for the documentation and completion of real estate transactions.
Indeed, since September 2021, notarised deeds of sale and ancillary documents must be filed electronically with the Land Registry by the notary public. In addition, the professional order of Moroccan public notaries has developed its own electronic signature tool.
Buyers generally conduct the necessary due diligence reviews, which cover technical, commercial and legal matters.
With regard to legal matters, the review will generally cover the following:
Particular attention must be paid to the way force majeure clauses are drafted, especially following the COVID-19 pandemic.
The following guarantees are imposed by statutory law on the seller, and can be extended or limited by the parties:
The warranties granted by the seller in a share deal include the typical representations and warranties relating to the company being sold (the existence of the company, share capital and ownership of the shares, corporate matters, the accuracy of the accounts, the company’s activity, financial standing, significant contracts entered into by the company, employment matters, litigation, tax matters, etc).
Investors should take the following into account when considering purchasing real estate in Morocco:
Moroccan environmental law is based on the "polluter pays" principle, meaning that the person responsible for the pollution shall be liable for damages and is responsible for taking appropriate actions to remediate such pollution. If pollution is discovered, the owner of the property has the burden of proving that the previous owner or a tenant generated the pollution, in order to avoid liability.
Zoning and planning regulations must be checked before planning a construction project and applying for a building permit.
The plans and regulations for each local region are usually available to the public for a nominal fee from the relevant local urban agency (agence urbaine), through a dedicated application form (note de renseignement) informing about the applicable uses and restrictions regarding footfall, the maximum height of buildings, etc.
No agreement with public authorities is necessary in order to facilitate a private development project. However, in some cases involving a specific real estate project (mostly to promote touristic, industrial and/or artisanal projects, as well as social housing), it is possible to request and obtain an authorisation from the relevant authorities to derogate from the applicable urban regulations.
Under Law No 7-81, the Moroccan State is permitted to expropriate land for reasons of public necessity or for temporary use (following a dedicated administrative and judicial procedure). In such cases, the expropriated entity must be compensated. The compensation is based on the current and effective damage directly caused by the expropriation, according to the value of the property on the day of the decision pronouncing the expropriation.
In an asset deal, the following taxes and fees are payable:
In a share deal, the following fees are due.
As a general rule, there are no restrictions on foreign investors acquiring real estate (either directly or indirectly through the purchase of a company holding real estate assets), except for specific business sectors such as agriculture, fishery, audio-visual, banking and insurance.
Pursuant to the provisions of the Dahir dated 23 April 1975 relating to the purchase of agricultural land in rural areas, foreign individuals, or entities whose share capital is held at least in part by foreign entities, were not allowed to acquire agricultural land for agricultural purposes. However, under the provisions of the new Law No 62-19 dated 14 July 2021 promulgating special provisions relating to the acquisition of agricultural lands by joint-stock companies (sociétés anonymes) or limited liability partnerships (sociétés en commandite par actions), such companies are allowed to acquire agricultural lands intended for agricultural purposes, even if they are held by foreigners.
However, if a foreign investor plans to carry out a non-agricultural project on agricultural lands (such as an industrial or residential project), a specific temporary and final certificate of non-agricultural purpose must still be obtained from the administration, which will allow the foreign investor to acquire the land and carry out the contemplated project.
Commercial real estate acquisitions in Morocco are generally financed by real estate investors through a combination of equity (including internal financing by the shareholders) and/or banking debt.
The following securities are usually required by lenders:
It is also common to obtain personal securities, such as a guarantee from a company (usually a parent company) covering cost overruns, completion, interest and principal.
The enforcement of any security in Morocco that benefits a foreign lender would result in a transfer of the enforcement proceeds outside of Morocco. As the Foreign Exchange General Instruction does not authorise this operation per se, such a transfer would require the foreign exchange office to allow a spot authorisation for the borrower.
Concerning repayment under a loan agreement, the General Instruction pre-authorises foreign financing under certain circumstances that would allow a Moroccan borrower to repay a loan to a foreign lender.
There may also be difficulties and delays related to the creation with the Land Registry of the administrative file of the beneficiary, called a "dossier special", which must gather corporate and administrative documentation in original, certified or apostilled format and sometimes involves exequatur proceedings.
The registration of a mortgage triggers the payment of registration duties and Land Registry fees, which are charged as follows.
A fixed duty (per property) of MAD100 also applies.
There are no stamp duties on credit or security agreements (subject to exceptions).
The enforcement of a security requires no specific fee.
In addition to corporate authorisations, a Moroccan entity must ensure that the following rules are complied with when granting any security.
In addition, the establishment of movable and immovable securities will require (as the case may be) the completion of registration formalities with the National Register of Securities over movable assets (registre national éléctronique des sûretés mobilières) or with the competent Land Registry.
As long as the following conditions are met, the secured lenders should enforce a mortgage without any obstacle:
Section 169 of Law No 39-08 provides that the priority ranks from the date of registration, with same-day registration ranking equally, and retains its rank and validity without any additional formality, until the valid registration of its withdrawal (mainlevée).
In order to subordinate a mortgage already registered in favour of a new mortgage, a specific subordination or intercreditor agreement between the creditors concerned exchanging ranks is required. The rules of subordination among creditors and governing the enforcement rights will be set out in that agreement.
In principle, and provided that they did not cause the damage themselves, the holder of security over real estate cannot be held liable for environmental damage.
Under Moroccan law, a security interest granted by a borrower may not be made void if the borrower becomes insolvent.
However, borrowers will not be authorised to proceed with the enforcement of any security interest for the duration of the borrower's insolvency proceedings. Indeed, any creditor whose receivables are not privileged by law are prohibited from commencing or continuing any individual legal action against the debtor.
In addition, the insolvency court can void securities granted during the six-month period prior to the borrower's declaration of insolvency, if it is considered that granting such security is prejudicial to the borrower's bankrupt estate.
In light of the expiration of the LIBOR index, parties to foreign currency facilities based on this index should take care to ensure that the risk of LIBOR being discontinued is appropriately covered in those agreements. The best way to achieve this is to draft interest clauses that set out fallback options if the reference rate cannot be determined (such as alternative reference rates or interest adjustment clauses).
Law No 12-90 on urban planning sets out the general principles applicable to strategic planning and zoning.
Strategic plans and zoning schemes are established through the issue of Urban Development Master Plans (Schémas Directeurs d'Aménagement Urbain) and zoning plans (plans de zonage). Development plans (plans d’aménagement) are prepared by each municipality, dividing the area into zones of different use, and attributing building density ratios to each zone.
In practice, the ability of a landowner to construct a new building or refurbish an existing one is controlled by public law by means of an administrative authorisation, which must be obtained prior to starting any construction works.
Overall responsibility for regulating the development and designated use of individual parcels of real estate lies largely with local authorities, including the urban agencies and the Regional Investment Centres (Centres Régionaux d’Investissement) responsible for issuing building permits.
The construction of a real estate project requires the following authorisations and permits (the list is not exhaustive as the situation depends on each particular project).
As an administrative act, any decision taken by the authorities must be justified and may be appealed before the relevant authority (recours gracieux) and/or the administrative courts (recours contentieux). A lawsuit may also be filed by third parties with a specific interest that deserves protection before the administrative authority or before the court, by asking for the decision to be annulled.
Generally, there is no need to enter into agreements with local or governmental authorities or agencies, nor utility suppliers, in order to facilitate a development project.
The following consequences could occur in a failure to comply with the applicable regulation related to construction and planning law:
In any case, a fine ranging from MAD1,000 to MAD100,000 may be ordered against the violating party.
Furthermore, anyone who continues to operate a project despite receiving a notification to close the construction site may be punished by imprisonment ranging from 15 days to three months.
Either individuals or legal entities can acquire real estate assets. Companies generally own large or high-value assets, with the most commonly used corporate forms being as follows:
Law No 70-14 dated 24 August 2016 introduced REITs known as Organisme de Placement Collectif Immobilier (OPCI) into the investment legal framework.
There are two different forms of OPCI:
A joint-stock company (SA) is a form of limited liability company in which the liability of each shareholder is, in principle, capped to the amount of its contributions to the company. An SA must include at least two shareholders. Unless otherwise provided in the company's articles of association (which may provide for restrictions on the transfer of shares, such as a temporary lock-up or prior approval clause (agrément)), the shares in an SA are freely transferable.
A simplified joint-stock company (SAS) is a flexible corporate form that is suitable for companies with high growth potential. The shares of an SAS cannot be listed. An SAS may be constituted by one or several shareholders, being legal entities or individuals. The liability of the shareholders is capped to the amount of their respective share contributions. The shares are freely transferable, unless otherwise set forth in the articles of association of the company. If the articles of association of the company include a lock-up clause, Moroccan law provides that this lock-up period cannot exceed ten years.
A SARL is the Moroccan form of a limited liability company. It can be incorporated as a sole shareholder company (in which case the company is a sole shareholder limited liability company – SARLAU) and may have up to 50 shareholders. The SARL is often used for smaller businesses, especially because of its lighter and simpler management organisation and process.
Unlike a joint-stock company, a SARL cannot be listed on a stock exchange and cannot issue preference shares and debt or equity securities that are convertible into shares.
A real estate civil company (SCI) is a civil company whose purpose is to hold real estate assets. Because it is a civil company, in principle an SCI cannot have a commercial or trading nature. The shareholders are indefinitely liable for the company debts, in proportion to the shares they hold in the share capital.
A joint-stock company requires a minimum share capital of MAD300,000. Contributions can be made in cash (numéraire) or in kind (en nature). Contributions in kind are subject to a specific appraisal procedure by an independent appraiser.
Moroccan law imposes no minimum share capital requirement on an SAS.
A limited liability company has no minimum share capital requirement. Contributions must be made in cash or in kind, with it being specified that contributions in kind are subject to a specific appraisal procedure by an independent appraiser.
A minimum share capital of MAD1 is required for a real estate civil company. Contributions can be made in cash or in kind, or may consist of technical skills (apport en industrie).
An SA can have either (i) a board of directors (conseil d'administration) or (ii) a management board (directoire) and a supervisory board (conseil de surveillance). The CEO (directeur général) is responsible for the day-to-day management of the SA and has the broadest power and authority to represent the company towards third parties.
The SAS is primarily governed by the terms and conditions of its articles of association.
A SARL is managed by at least one manager, who must be individual and who has the broadest power and authority to represent the company towards third parties, except for matters legally restricted to shareholders.
An SCI is managed by at least one manager, who must be a shareholder of the company (if the articles of association of the company do not mention this point, all the shareholders are empowered with the powers and authority to manage the company).
An SA must appoint at least one statutory auditor (two if the company is listed), and is required to file its accounts annually. These accounts must be certified by the statutory auditors, closed by the board of directors and approved by the shareholders’ meeting before being filed with the local tax authorities and the trade registry. Stamp duties apply (up to MAD200), to which are added the statutory auditors’ fees for the certification of the annual accounts.
There is no legal obligation to appoint statutory auditors in an SAS, except where the company has an annual turnover (excluding VAT) exceeding an amount fixed by decree (it being specified that this decree has not yet been promulgated). An SAS is also required to file its annual accounts, duly approved by its president, with the local tax authorities and the trade registry.
A SARL must appoint statutory auditors only if its annual turnover exceeds MAD50 million. A SARL’s annual accounts must also be filed – duly approved by its shareholder(s) – with the local tax authorities and the trade registry.
There is no requirement to appoint a statutory auditor in an SCI, nor to file annual accounts.
In Morocco, there are several types of arrangement allowing a person, company or organisation to stay in a property for a limited period of time without purchasing it. The main types of arrangement are the lease agreement, the usufruct, the commodat (a free lease agreement for the use of the property) and, in connection with private state land, the authorisation to temporarily occupy publicly owned land.
In addition to general rules governing leases, as laid down by the Dahir dated 12 August 1913 forming the Obligations and Contracts Code regulating the general rules of contract law (as amended from time to time), Moroccan legislation has enacted two specific laws governing commercial leases and professional and residential leases.
The Dahir No 1-13-111 dated 19 November 2013 promulgating Law No 67-12 regulates contractual relations between tenants and landlords for residential or professional premises. The professional lease is mainly relevant for liberal professionals not practising any commercial, industrial or handicraft activities.
The commercial lease is regulated by the Dahir No 1-16-99 dated 18 July 2016, promulgating Law No 49-16, which sets out a complete list of situations in which it applies. Pursuant to the provisions of Law No 49-16, the landlord must grant a commercial lease for:
Law No 49-16 expressly states that a lease agreement cannot be concluded for certain premises, including:
The right for the tenant to renew the lease is one of the main characteristics of a commercial lease. Therefore, if the landlord wishes to terminate the lease ahead of the agreed contractual term, the tenant is entitled to claim compensation (indemnité d'éviction), which is assessed by considering the value of the considered business.
As a general principle, rents are freely negotiable between the landlord and the tenant.
Although permitted by law, variable rents are not common in leases for office premises, but are a common feature in retail leases for premium international brands (expressed as a percentage of the annual gross revenues of the tenant’s business, subject to a specified minimum fixed rent).
The only measures relating to rents following the COVID-19 crisis affected a specific category of property: the so-called habous properties, which are subject to a very specific legal regime. During the lockdown, habous tenants were exempted from paying their rent.
As the duration of commercial leases is not regulated by Moroccan Law, the parties are free to enter into a lease agreement for any amount of time. In practice, commercial leases are entered into for an initial period of three to nine years.
The right for the tenant to freely assign its lease and to renew the lease is one of the main characteristics of a commercial lease, which implies that, in the event of non-renewal, the tenant is entitled to an eviction indemnity based on the value of its business, among other considerations. The tenant must have been occupying the premises for two consecutive years or paid "key money" (pas-de-porte) in order to be entitled to such a right of renewal.
Work and Repairs
The parties are free to allocate the various types of work and repairs. However, in general, ordinary repairs and maintenance are borne by the tenant, and the landlord bears the costs of structural and major repairs, as well as repairs resulting from wear and tear, force majeure and construction defects.
Frequency of Rent Payments
The parties are free to negotiate the frequency of rent payments. Rent for commercial premises is usually payable monthly or quarterly in advance.
For now, there is no published information on the effectiveness of a force majeure provision for justifying the non-performance of a lease.
Since the situation resulting from the COVID-19 crisis is particularly exceptional, the courts should tend to rely more on the principle of good faith of the parties. In this context, some facilities have been set up by landlords (owners of major shopping centres), notably including the approval to exempt their tenants from paying rent for the period of closure of their premises as imposed by the Moroccan authorities.
Under Moroccan law, force majeure legal provisions are not of a mandatory or public order nature, so it is possible to include contractual/tailormade force majeure definitions when relevant. Therefore, it is now relatively common to address the unforeseen consequences of the COVID-19 pandemic in contractual arrangements.
Under the applicable regulations, the amount of the rent, the conditions of its revision and the rate of its increase or decrease can be freely determined by the tenant and the owner.
However, Law No 07-03 on the revision of the amount of rent for premises of commercial, industrial or handicraft use forbids increases in rent within the first three years from the date of concluding the lease agreement, or from the date of the last judicial or contractual review, and/or forbids parties from agreeing on an increase in excess of the rates set out by law (ie, 8% for residential leases and 10% for others, including commercial and professional leases).
If no agreement has been reached between the tenant and the landlord regarding the rent revision conditions and the rate of its increase, the parties may apply for judicial review based on the rates mentioned above.
In practice, the parties generally stipulate a rent review clause that is based on the conditions imposed by Law No 07-03 (ie, an increase in rent by 8% or 10% every three years).
Law No 07-03 provides that a rent increase may only apply every three years following the conclusion of the lease or the date of the previous judicial or contractual rent review, provided that any such increase is limited as follows:
VAT is payable on rent in the following cases.
The landlord can opt to pay VAT (at 20%) on non-equipped business rentals. This option is made by means of a formal request and can be applied globally or partially to the taxpayer’s activities (ie, the option can be applied to a given real estate project, or to just a single building/premise/apartment).
According to Moroccan law, there are no additional costs to be paid by the tenant at the beginning of the lease term, except a registration duty payable to the tax administration (set at MAD200). Market practice is for the tenant to pay and bear the registration fees, although the Moroccan Tax Code (MTC) does not expressly specify which party must pay them.
The tenant generally bears the costs of maintenance and repairs for common areas (ie, gardens, parking areas, stairways and elevators) by way of service charges, in proportion to the area of the premises occupied by each tenant compared to the total area of the property. In practice, the service charges are usually agreed as a lump sum.
Parties are free to determine which of them will pay the operating fees (eg, electricity, water, telecommunications and other utilities), but the utility costs are generally borne by the tenant according to its specific needs and usage.
A provision may be added in a lease whereby the tenant undertakes to take out insurance covering its professional civil liability, as well as damage caused to third parties or property as a result of its activities on the premises, or due to external events (fire, explosion, water damage, theft, etc). Landlords may take out an insurance policy for the building itself, but this process is quite unusual.
As far as is known, tenants did not recover rent payments or other costs under business interruption insurance policies as a result of premises closures and clean-up costs incurred during the COVID-19 pandemic.
The parties generally provide that the leased premises are rented for a specific purpose, with any change being subject to the consent of the landlord. Moreover, the use of rented premises may be limited by legal or regulatory provisions, such as urban planning and zoning regulations.
With regard to commercial leases, a judge may authorise the tenant (even after a refusal by the landlord) to carry out one or more activities that are ancillary or related to the initial business activity, provided that they are not in conflict with the purpose, characteristics and location of the building, and that they are not likely to affect its security.
No details are provided by Law No 49-16 governing commercial leases relating to works initiated by the tenant.
In any event, the parties are entitled to agree on the favoured work regime for the tenant, and it is generally provided that the tenant may not alter or improve the premises without the prior consent of the landlord, especially if the work is substantial and impacts the structure of the building.
Specific regulations apply to financial leases (credit bail), lease agreements for the use of agricultural land (bail à ferme), authorisations to temporarily occupy publicly owned land (autorisation d’occupation temporaire du domaine public), etc. The habous properties, which are subject to a very specific legal regime, were subject to particular measures following the COVID-19 pandemic crisis, with habous tenants being exempted from paying their rent.
The Moroccan Commercial Code provides for the regime applicable to insolvency proceedings, but does not provide for a specific regime or scheme applicable to a lease if the tenant is deemed insolvent. In the case of insolvency proceedings that do not lead to liquidation, it is customary for the court to appoint an administrator, who may decide to uphold the lease in force if it is deemed necessary for the tenant's business operations.
To protect themselves against a failure by the tenant to pay rent, landlords are provided with the following main forms of security:
A tenant does not have the right to remain in occupation of a property after a lease has expired or been terminated. Therefore, if the real estate is not vacated on the due date, a court order can be obtained by the landlord to recover possession thereof. The lease agreement may also provide for other penalty clauses if the property remains occupied without due cause after the expiry of the lease.
Pursuant to Law No 49-16 governing commercial leases, the tenant under a commercial lease cannot, in any circumstances, be deprived of the right to assign its leasehold interest – with or without its business (ie, separately).
The tenant and the assignee must, however, give a notice referring to the assignment to the landlord. This assignment is not effective against the landlord until the date of the notification.
The tenant remains liable to the landlord with respect to all prior commitments.
According to Law No 49-16, a tenant is permitted to sublease any part of the leased premises, unless the lease agreement sets out otherwise. The tenant must notify the landlord about the sublease, and the sublease is enforceable against the landlord only from the date of receipt of the notification.
Law No 49-16 governing commercial leases provides that a judicial termination of the lease can be requested by the landlord if the lease contains a termination clause (clause résolutoire) and at least three months’ rent are still unpaid by the tenant, despite a 15-day formal prior notice being served.
There are also a number of instances in which the landlord has the ability to deny the right of the tenant to renew the lease without paying an eviction fee (indemnité d’éviction). These cases include notably unauthorised alterations to the premises, default of payment, sublease of the premises contrary to the terms of the lease use of the premises in breach of the originally agreed use, etc.
Market practice is for the tenant to pay and bear the registration fee, even though the MTC states that the party to whom the lease is beneficial must pay the registration fee, but the agreement can provide for a different situation. Such registration duty also applies to signatures of amendments and schedules.
As mentioned under 6.19 Right to Terminate a Lease, the landlord is entitled by Law No 49-16 to request from the court an early termination of the lease agreement and the eviction of the tenant in certain cases. However, in practice, it is a fairly time-consuming and difficult process.
Third parties are not entitled to seek the termination of a valid lease agreement. However, Law No 49-16 states that any public authority may terminate the lease if it is in the public interest, in which case the landlord is not required to pay an eviction compensation (indemnité d'éviction) to the tenant.
The parties may choose between two types of pricing mechanism for construction projects (which may sometimes be combined):
Different types of contractual arrangement can be adopted by the owner:
In any case, the assistance of a Moroccan architect is mandatory when applying for a building permit. This architect is responsible for preparing the conception plans and the building permit application file, monitoring the proper execution of the work and assisting the owner at the delivery of the work, as well as issuing the declaration of completion in order to obtain the certificate of conformity or the occupancy permit.
Under a private construction contract, the devices typically used to manage construction risks are as follows (and are freely negotiated by the parties):
Delay provisions in the event that the agreed-upon milestones or completion dates are not met (unless the delay is due to force majeure or other unforeseen event, or is attributable to the owner) are generally used to avoid any schedule-related risk on construction projects. Delay penalties are often capped at a specific percentage of the contractor’s contract price.
Article 264 of the Moroccan Obligations and Contracts Code provides that the judge may always assess and then reduce the amount of contractual penalties.
Security from contractors to guarantee both timely completion and the correct performance of the work is generally requested by owners. The contractor commonly gives the client a completion guarantee/performance bond and holdbacks (usually replaced by a bank guarantee) (see 7.3 Management of Construction Risk). It is also market practice for the client to request an advance payment bond, payable on first demand, to guarantee the repayment of any advance payment paid by the client at the beginning of the work.
Moroccan law does not provide for specific provisions regarding the possibility for contractors and/or designers to place a lien or otherwise encumber an asset in the event of non-payment by the client. The client is the only one entitled to use the property as collateral, as the real estate is generally owned by the client.
Generally, the conditions precedent that must be met before the handover can take place are set out within the construction contract.
In practice, upon completion of the work, the parties will hold a provisional handover/acceptance (réception provisoire), even if there are some slight defects or snagging still outstanding, which the contractor undertakes to repair during the warranty period (which normally is one year long). Once the warranty period has expired, a final handover/acceptance takes place (réception definitive).
In any case, upon completion of construction, the owner must obtain an occupancy permit or, if the building is not intended for private accommodation, a certificate of conformity certifying that the building as erected complies with the provisions of the building permit. This certificate is a prerequisite to the use of the erected building; using a building without such permit may give rise to fines and criminal liability.
VAT is generally not payable on the sale or purchase of real estate. Pursuant to Article 89-I 4° of the MTC, VAT is payable on real estate work, subdivision/allotment operations and real estate development transactions (the sale of plots in a real estate development project is subject to VAT at a rate of 20%).
The acquisition of large real estate portfolios has the same tax consequences as the purchase of a single real estate property: if the transaction involves the direct purchase of real estate, it is subject to registration fees and property registration (see 2.10 Taxes Applicable to a Transaction).
However, in order to minimise the tax cost, it may be possible to acquire shares in a company that does not qualify as a real estate company (ie, does not have gross fixed assets composed at least 75% of real estate properties/other real estate companies). In that case, the transaction would be free of registration duties and no property registration fee would be payable (see 2.10 Taxes Applicable to a Transaction).
There are two main local taxes that must be paid when occupying commercial/industrial premises: business tax and the tax on municipal services.
Pursuant to Article 6-II-1° of Law No 47-06 on local taxation, all newly created professional activities benefit from a total exemption of business tax for the first five years after starting their activity. Business premises benefit from this exemption.
In principle, the gross annual rental value of all the assets at the company’s disposal (including assets purchased and rented) is the taxable basis for business tax.
Newly incorporated companies benefit from a five-year business tax exemption, regardless of their legal purpose.
For hotel/housing activities, the taxable basis is determined by multiplying the construction/building cost with the following proportional rates:
Companies that do not own the premises they occupy must also include the amount of rent paid to the owner for all types of leases (real estate, leasing, etc) in the taxable basis.
The applicable rate is based on the nature of the activity and ranges from 10% to 30%, applicable on the annual rental value of assets used for the activity.
Tax on Municipal Services
The taxable basis for the tax on municipal services is determined by reference to the rules applicable to business tax. In principle, the municipal tax services taxable basis is identical to the business tax taxable basis (the taxable basis is reported in the same return for both taxes).
There is no exemption for the start of the activity regarding this tax (ie, it is payable from the first year).
The tax rate for the municipal services tax differs according to the geographical location of the activity, as follows:
Companies that do not occupy the premises or buildings they own are not subject to business and municipal taxes on these properties; the tenant is subject to the taxes relating to these properties on rent.
The applicable regime is based on the distinction between companies and individuals.
According to the MTC, foreign investors owning property in Morocco are subject to corporate income tax on revenues deriving from that property (depending on the provisions of any double taxation treaty that may govern taxation, but generally capital gains on real estate are taxed in the country where the property is located).
The following rates apply, depending on the taxable income (ie, mainly the capital gain generated by the sale of a real estate property located in Morocco and made by a foreign investor):
The real estate rental income of individuals is subject to the following rates:
If a professional pays the real estate income (public or private legal entities or individuals), this professional will withhold the personal income tax on behalf of the real estate owner, although owners can choose a withholding waiver and handle the filing and tax payment requirements themselves.
Capital gains on real estate properties are subject to personal income tax at the rate of 20% (a specific rate of 30% applies in limited cases); in the case of a capital loss, the minimum tax payable amounts to 3% of the sale price.
The following are exempt from personal income tax:
Double Tax Treaties
Double tax treaties entered into by Morocco generally provide that income/capital gains from immovable property may be taxed in the Contracting State in which the property is located.
Thus, the domestic treatment provided by the MTC is generally confirmed and the rental income received by a foreign investor (on a property located in Morocco) will be subject to (corporate) income tax in Morocco.
In the absence of a tax treaty, taxation will generally be applicable in Morocco and may generate a situation of double taxation.
When legal entities such as companies subject to corporate income tax own real estate, they may benefit from amortisation, which is deducted within the cap of the authorised rates, pursuant to the practices of each profession, industry or branch of activity.
The recommended rates for the tax deduction of the taxable basis by the tax authorities are 4% for residential or commercial buildings, and 5% for permanently constructed industrial buildings.
Furthermore, the main new innovation in real estate ownership is the setting up of Moroccan REITs (OPCIs), which enjoy the following tax incentives.
The OPCI may obtain a total exemption from corporate income tax (rental income, capital gain, dividend) if it meets the following conditions:
New Relationship with Israel
The Moroccan real estate market will undoubtedly benefit from the new relationships that have been reinstated between Morocco and Israel.
The Kingdom of Morocco, the United States of America and the State of Israel signed a tripartite declaration (the Joint Declaration) on 22 December 2020 that creates a new relationship between the Kingdom of Morocco and the State of Israel.
The Joint Statement promotes dynamic and innovative bilateral economic co-operation between Morocco and Israel in the following sectors:
Continuing their wishes to strengthen this relationship, on 21 February 2022 the Kingdom of Morocco and Israel signed an agreement on the creation of industrial zones in Morocco, on co-operation between the private sectors of both countries and on the exchange of expertise in the field of innovation. Morocco and Israel aim to quadruple their trade to more than USD500 million per year. Sectors with "high investment potential" are targeted, including the digital, agribusiness, automotive, aerospace, renewable energy and pharmaceutical industries.
Such diplomatic movement may significantly increase Israeli investment in Morocco, particularly real estate investment, as Morocco could count on 800,000 Moroccan Jews who live in Israel.
Increasing Prices due to the War in Ukraine
The price of housing real estate assets decreased in 2021 due to the liquidation of the disposal of stocks after the COVID-19 crisis and the attendant decrease in demand. Prices for housing units may rise again in 2022 because of the increase in the price of building materials.
Indeed, the prices of building materials are increasing considerably – for example, steel cost MAD7.5 per kilogram before the war but now costs MAD12.5. Some materials are in short supply, such as glass. As a consequence, some developers have gone so far as to suspend construction until prices become more stable.
As a result of the increase in the prices of materials, the shortage of certain materials and the slowdown in building production, the prices of finished real estate assets in 2022 are expected to rise by up to 20% compared to 2021 prices.
It is hoped that the conflicts between builders and buyers or owners who had ordered their property before the crisis will not be too intense during this second crisis suffered by the real estate industry since 2020.
More Transparency and Clarity in Real Estate Law
Transparency in law is increasingly the subject of public debate, with Moroccan Supreme Court cases finally becoming available to everyone online (https://juriscassation.cspj.ma/), free of charge. This accessibility will enable Morocco to offer a state of transparency in which the law is more accessible, more applicable and more balanced. This publicity is only the first step of a course that still needs to be completed by published case law being made available, with the possibility to search case law by key words and in languages other than Arabic. This improvement will also help to attract more foreign investors by reassuring them about the Moroccan legal system.
This transparency has also been reflected in real estate matters through the adoption of two decrees:
In substance, these decrees give citizens legal grounds to request copies of the documents filed with the land registry (under the applications for land registration or existing in the land titles) electronically (by email), regardless of whether the underlying is kept electronically or in paper form. Here too, there is a little way to go before the doctrine of open data is followed completely, but the considerable progress already achieved by the Moroccan administrations in record time must be saluted.